The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Something odd has been happening with the Supreme Court battle over the legality of subsidies for Obamacare’s federally-organized health insurance exchange. The Obama administration has been claiming—beyond credulity—that it has no “Plan B” should the Court side with the administration’s challengers. “We don’t have an administrative action that we believe can undo the damage,” said Health and Human Services Secretary Sylvia Burwell at a recent Congressional hearing. But contrary to those claims, sources familiar with HHS’ thinking say that the agency does, indeed, hope it has a way around the Court and the law.

WASHINGTON, DC - FEBRUARY 04: HHS Secretary Sylvia Mathews Burwell testifies during a Senate Finance Committee hearing on Capitol Hill, February 4, 2015 in Washington, DC. The committee was hearing testimony from Secretary Burwell about President Obama's FY2016 budget request for the Department of Health and Human Services. (Photo by Mark Wilson/Getty Images)

The Obama administration has been striving to create the impression that a health care apocalypse will ensue if SCOTUS sides with those who believe that a plain reading of the Affordable Care Act’s statutory language forbids the deployment of subsidies in the federal exchange. “If they rule against us,” said President Obama, “we’ll have to look at what our options are. But I’m not going to anticipate that.”

A different story behind the scenes

Behind the scenes, however, the administration appears to be telling another story. A few weeks ago, Rep. Joe Pitts (R., Pa.) told Burwell that he had learned of a 100-page document working through various contingency plans in the event of an adverse ruling. Burwell responded with a classic non-denial denial, stating that she was not aware of the existence of such a document.

Two sources who have spoken to HHS about the matter have informed me that the agency does in fact have a “Plan B” to deal with an adverse ruling. It involves encouraging states to declare that they are subcontracting the management of an insurance exchange to HHS, thereby “establishing” an exchange as per the law.

However, HHS is not 100 percent certain that such a maneuver will fly; the Supreme Court may choose to define specifically what an “exchange established by the State under Section 1311” actually means. If the Court’s majority opinion specifies that an exchange has to be actually established by a state, rather than subcontracted out to the federal government, HHS will have to go to “Plan C.”

On the other hand, it’s conceivable that the Court would indeed give states that easy way out, thereby making clear that if there is disruption in the health care markets, it’s not because the Supreme Court caused it.

What’s remarkable is that Burwell and her administration colleagues have refused to keep consumers informed of the possibility that their subsidies might be illegal. The administration clearly hopes that the Court will side with them, so long as the Court feels guilty about the millions of people signed up for Obamacare-sponsored health coverage.

Indeed, if the IRS had never taken the action it did in 2011 to allow subsidies to flow through Obamacare's federal exchange, we’d be in a different place today. Dozens of Republican governors would have set up exchanges in their states, because they wouldn’t want to turn down the “free” federal money. Something similar has happened with Medicaid, where ten GOP governors have come out in favor of expanding the developed world’s most dysfunctional health care system.

Instead, the President was scared that his law would be more vulnerable if he let states decide what was best for them. It may turn out to be a costly mistake.

* * *

UPDATE: On Twitter, Jonathan Ingram points out that the statutory text of the now-infamous Section 1311 of the Affordable Care Act does specify that "a State may...enter into an agreement with an eligible entity to carry out 1 or more responsibilities of the exchange," but that such an agreement must meet a number of specifications that the federal exchange may not meet:

INVESTORS’ NOTE: The biggest publicly-traded players in Obamacare’s health insurance exchanges are Aetna (NYSE:AET), Humana (NYSE:HUM), Cigna (NYSE:CI), Molina (NYSE:MOH), Anthem (NYSE:ANTM), and Centene (NYSE:CNC), in order of the number of uninsured exchange-eligible Americans for whom their plans are available.